Dynamic Asset Allocation or Balanced Advantage Funds

Dynamic asset allocation funds are a type of balanced fund or hybrid fund. Most of the funds in this category are invested and spread across various sectors, including equity funds, real estate, stocks, and bonds.

In case the market slows down in times of a recession or a bear economy, a dynamic asset allocation fund is the one resource meant for all consumers regardless of their risk threshold. Each of these funds is managed by a professional manager who takes care to ensure that the quality of investments is not lowered.

Bearing in mind the fact that equity funds offer the highest returns, one must not forget that the associated risks are also relatively high. In an economy that has witnessed a slump in recent months, many investors are wary of pouring in too much of their assets in just one mutual fund. They can opt for the list of dynamic asset allocation funds to earn guaranteed returns.

List of Dynamic Asset Allocation Mutual Funds

• HDFC Balanced Advantage Fund Direct Plan Growth
• Bajaj Finserv Balanced Advantage Fund Direct Growth
• SBI Balanced Advantage Fund Direct Growth
• ICICI Prudential Balanced Advantage Direct Growth
• Quant Dynamic Asset Allocation Fund Direct Growth
• Tata Balanced Advantage Fund Direct Growth
• Edelweiss Balanced Advantage Fund Direct Growth
• Samco Dynamic Asset Allocation Fund Direct Growth
• UTI Balanced Advantage Fund Direct Growth
• Nippon India Balanced Advantage Fund Direct Growth

What are Dynamic Asset Allocation Funds?

A dynamic asset allocation perspective means that whenever a competing investment vehicle malfunctions, the liquidity poured in is often shifted to another vessel that is performing better.

The built-in dynamic nature of these funds is their primary advantage. It is a mechanism to beat off the market slumps.

The balanced funding option is highly recommended for those who are looking for assured returns after the end of their tenure. It is also a valuable asset to those who have limited funds to invest in multiple sectors. Above all, dynamic asset allocation Mutual Funds are preferred for their steady and recurring returns.

Features of a Dynamic Asset Allocation Fund

The significant characteristics of a dynamic asset allocation fund:

1. Management

Portfolio managers actively manage these funds, regularly monitoring market circumstances and making timely decisions about asset allocation. This active strategy distinguishes them from funds that try to imitate the performance of a benchmark, such as index funds.

2. Tactical Allocation

Asset allocation methods are used by fund managers to make short-term changes to the asset composition of their portfolios. These adjustments might be influenced by factors such as interest rate changes or geopolitical developments.

3. Risk Management Emphasis

Risk management is one of these funds' goals. During market downturns, they may reduce exposure to high-risk assets to protect money. In contrast, during market conditions, they may expand their exposure to assets to capture prospective gains.

4. Rebalancing

The fund's portfolio is rebalanced regularly in response to changes in market circumstances, according to the company's investing plan.

How Does a Dynamic Asset Allocation Fund Work

The main assumption of dynamic asset allocation is to respond to current risks and downturns and capitalize on trends in order to outperform a desired benchmark, such as the Standard & Poor's 500 indexes (S&P 500). As investment managers can modify portfolio allocations as they see fit, there is often no target asset composition. 

The effectiveness of dynamic asset allocation is contingent on the portfolio manager making sound investment decisions at the appropriate time. Investors can use dynamic asset allocation as one of several portfolio management strategies.

How Should You Invest in a Dynamic Asset Allocation Mutual Fund?

You can invest in Dynamic Asset Allocation Funds through Groww via the following steps:

Step 1: Visit the Play or App Store and download the Groww application. 

Step 2: Sign up on the application and complete the KYC and registration process.

Step 3: Choose a suitable fund and invest.

Why Should You Invest in a Dynamic Asset Allocation Mutual Fund?

There are several advantages to dynamic asset allocation Mutual Funds, viz. –

1. A dynamic asset allocation fund is one of the few investment instruments which can resist the bearish pull of a market-facing some very real prospects of a recession. It is also extremely diversified, which makes the prospects of making a loss at the end of the tenure slightly low.
2. It is an ideal vessel to become direct contributors to the Indian economy via investment opportunities. These funds have the advantage of investing not only in high-risk equity markets but also in the relatively placid real estate and bond markets. This makes even reluctant investors place their bets on the economy.
3. Taxation returns on such Mutual Funds are also quite relaxed. Since the investments are spread across several sectors, there is a chance of availing tax exemptions as and where applicable.
4. Investing in balanced funds is also a way to diversify the investment portfolio. Managing such a portfolio is always easier when the fund is consolidated, as is the case of a balanced fund.
5. Lastly, the returns on such a fund are generally more dependable and better realised than most comparable Mutual Funds, especially over longer periods.

Taxation Rules of Dynamic Asset Allocation Mutual Funds

Since most such funds are fundamentally Funds of Funds, they come with significant taxation liabilities. Ordinarily, most Mutual Funds are subject to LTCG taxes, as are dynamic asset allocation MFs. If the funds are indexed, there will be a flat rate of tax at 20%, and the purchase price will be subjected to inflation rates.

However, the capital gains are calculated only once every three years between the procurement of the fund and the taxation period. In case the fund is non-indexed, the taxation liability is slightly lower.

FAQs

Q1. What is dynamic asset allocation fund meaning?

Asset Allocation in a Dynamic Environment Funds are financial instruments that offer an actively managed approach to portfolio construction and adjustment in response to market movements. These funds provide a strategy for investing that enables investors to modify their allocations in response to changing market conditions.

Q2. Is there any disadvantage to investing in dynamic asset allocation fund?

In some circumstances, active management tactics may underperform, particularly during protracted bull markets.

Q3. Who should invest in a dynamic asset allocation fund?

These funds are well-suited to individuals saving for retirement, education, or other long-term financial goals since they are designed with long-term investment horizons in mind, generally lasting years or more.

Q4. What strategy does the dynamic asset allocation fund follow?

These funds actively manage risk by modifying asset allocation based on market conditions, which can aid in the protection of investments during market downturns.

Q5. What is the main benefit of the dynamic asset allocation funds?

One key advantage of these products is the chance for portfolio diversification they give. Dynamic Asset Allocation Funds, which provide diversification, might be beneficial to investors who want to invest in different sorts of assets.

Disclaimer - Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.